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Cross border disputes: who sues whom where?

By By Anna Riley1999-03-01T00:00:00+00:00

Recent cases under the Brussels Convention raised some interesting points on who can sue, when and where. Anna Riley reports.

The large amount of international business conducted within the insurance and reinsurance industry means that disputes involving questions of interpretation of the 1968 Brussels Convention on Jurisdiction and Enforcement of Judgments in Civil and Commercial Matters (the “Brussels Convention”) are common. The Brussels Convention applies to all EU member states and, by virtue of the Lugano Convention, to the EFTA states. It was incorporated into English law by the 1982 Civil Jurisdiction and Judgments Act.

DrouotThe first of these cases involved a dispute over the interpretation of “between the same parties” in article 21 of the Brussels Convention. The object of this provision is to prevent parallel proceedings being brought before the courts of different contracting states, thereby avoiding the possibility of conflicting judgments. Article 21 provides:

“Where proceedings involving the same cause of action and between the same parties are brought in the courts of different Contracting States, any court other than the court first seized shall of its own motion decline jurisdiction in favour of that court. A court which would be required to decline jurisdiction may stay proceedings if the jurisdiction of the other court is contested.”

The subject of the dispute was the cost of refloating a barge, the Sequana, which was owned by Mr Velghe and which was carrying cargo belonging to CMI. CMI's cargo was insured with Protea. Shortly after beginning its voyage from the Netherlands to France, the Sequana started to take in water and the plaintiff, Drouot, who was the French insurer of the hull, arranged to have the barge refloated at its own expense. CMI's cargo was saved.

In August 1990, CMI and Protea, the owner and insurer of the cargo, brought an action in Rotterdam against Mr Velghe for a declaration that they were not obliged to contribute to the cost of refloating the barge and ancillary costs. Part of their reason for not wishing to pay was that they said that Mr Velghe had been the captain of the barge at the time it got into difficulties, and they held him responsible for the accident. Subsequently, Drouot commenced proceedings in France against CMI, Protea and GIE Reunion (Protea's agent) seeking a contribution from them towards the amount it had paid for the barge to be refloated. There were therefore two sets of proceedings involving CMI and Protea: in Rotterdam they were suing Mr Velghe and in France they were being sued by Drouot.CMI and Protea objected to the French proceedings because they had already started proceedings in the Netherlands which, according to them, involved the same subject matter and the same parties. They argued that an insurer and its insured (Drouot and Mr Velghe) should be treated as the same party for these purposes and also claimed that they would have joined Drouot in the Netherlands proceedings if it had not been for Dutch procedural rules which prevent an insurer being a party to proceedings involving its insured.

The matter went through the French appeal courts and finally the question of the correct interpretation of “between the same parties” was referred to the European Court of Justice.The court rejected CMI and Protea's argument that it was relevant that they had not been able to name Drouot in the Dutch proceedings. It had already been established in The Maciej Rataj [1995] All ER (EC) 229 that the application of article 21 could not be made conditional upon the individual features of national procedural law.

In his opinion, the Advocate General said that the key to the application of article 21 was the comparison of the capacity in which the claim for contribution was being made by Drouot in the French court with that of Mr Velghe in the Dutch court. Drouot was making a claim for partial reimbursement of the money it had paid to refloat the barge. Although Drouot was Mr Velghe's insurer, the claim was not being made as his representative. This was not a case where the insured's rights had been subrogated. Following the earlier case of The Maciej Rataj, the Advocate General found that the expression “same parties” in the context of article 21 should be interpreted literally and strictly.

Although the court recognised that there could be situations where the interests of an insurer and its insured were so closely linked that they could properly be viewed as the same party for the purposes of article 21, the judgment of the European Court makes it clear that this will not automatically be the case. The factual question of whether the interests of Drouot were “identical to and indissociable from” those of Mr Velghe in this case was left for the national courts to decide, although the European court commented that it did not appear that they were.

AIGIn AIG Group (UK) Ltd v The Ethniki, two important points arose - the application of article 5 (1) of the Brussels Convention and the effect of a “wording as original” statement in a reinsurance contract.

HAI was insured against earthquake risks by Astir Insurance Company, whose rights and obligations had been assumed by The Ethniki at the relevant time. The plaintiffs entered into a reinsurance contract with Astir. In the reinsurance contract, there was a claims control clause which provided as follows:“Notwithstanding anything herein contained to the contrary, it is a condition precedent to any liability under this policy that: (A) the Reassured shall, upon any knowledge of loss or losses which may give rise to a claim under this policy, advise the Underwriters thereof by cable within 72 hours; (B) The Reassured shall furnish the Underwriters with all information available respecting such loss or losses, and the Underwriters shall have the right to appoint adjusters, assessors and/or surveyors and to control all negotiations, adjustments and settlements in connection with such loss or losses.”

The reinsurance slip policy also provided:“CONDITIONS: Wording as original.”When an earthquake caused damage to one of HAI's factories in Greece, it made a claim. A coverage dispute arose and HAI sued Astir for payment under the policy. AIG was joined as a third party. AIG subsequently brought proceedings in England against the insurer (by then, The Ethniki) to obtain a declaration that it was not liable under the policy due to Astir's failure to comply with the claims control provision. AIG also claimed damages for a breach of an implied term in the reinsurance contract that Astir would, on being notified of a claim under the primary insurance, “take all proper and businesslike steps to have the amount of the loss fairly and carefully ascertained”.

The Ethniki applied for the writ to be set aside on the grounds that by virtue of article 2 of the Brussels Convention, it could only be sued in Greece. Article 2 states that:“Subject to the provisions of this Convention, persons domiciled in a Contracting State shall, whatever their nationality, be sued in the courts of that State.”Alternatively, The Ethniki challenged the English court's jurisdiction on the ground that the “Wording as original” statement in the Conditions of the slip policy effectively incorporated into it a clause in the primary insurance contract which conferred jurisdiction on the Greek courts.AIG argued that article 5(1) of the Brussels Convention applied and that the effect of its operation was to allow The Ethniki to be sued in England. Article 5(1) states that:“A person domiciled in a Contracting State may, in another Contracting State, be sued: (1) in matters relating to a contract, in the courts for the place of performance of the obligation in question.”

The judge had to decide whether article 5(1) could confer jurisdiction on the English courts. It was necessary to decide, therefore, where the “place of performance of the obligation” was. This question was complicated by the fact that there were several separate obligations involved, some of which fell to be performed in England and some in Greece. Following the Court of Appeal's reasoning in the earlier case of Boss Group Ltd v Boss SA France SA [1996] 4 All ER 970, Colman J said that in cases where more than one obligation was in issue, the relevant obligation for the purposes of applying article 5(1) was the “principal obligation” in issue.

In this case, there were two material breaches - (i) the alleged breach of the claims control clause, which was a condition precedent to liability and (ii) the alleged breach of the implied ascertainment of loss obligation, which only arose if the claims control clause was complied with. The first of these breaches was of an obligation which fell to be performed in London, as the place of business of the reinsurers. However, the implied obligation fell to be performed in Greece, as the location of the damaged factory. Which of these two obligations was the principal obligation? The answer to that question would determine whether it was the English or Greek courts which had jurisdiction.

Colman J concluded that the claims control clause was the principal obligation and that therefore the effect of article 5(1) was to confer jurisdiction on the English courts. In reaching this conclusion, he placed importance on the fact that the breach of the claims control clause had been pleaded as the basis for the primary relief sought in the points of claim - the declaration that AIG was not liable.

The Ethniki's alternative argument that the “Wording as original” condition on the reinsurance slip had the effect of incorporating the jurisdiction clause in the insurance policy was also rejected. Colman J considered caselaw on the same point in relation to arbitration clauses and relied on a Court of Appeal decision (The Annefield [1971] 1 All ER 394) which established that there could be incorporation of an arbitration clause in such circumstances only if the words of incorporation clearly expressed that as the mutual intention. Colman J found that jurisdiction clauses, like arbitration clauses, were ancillary provisions and as such were not incorporated by the term “Wording as original” without any further evidence that this was the intention.

He did, however, recognise that there might be cases where in all the circumstances at the time a contract was made, it would not be realistic to limit the scope of incorporation so as to exclude a jurisdiction clause.

In rejecting the incorporation argument, Colman J also looked at what the position would have been in the absence of the “Wording as original” provision. The reinsurance contract was made by brokers in the London market with a London company, so that under the Contracts (Applicable Law) Act 1990 and articles 4(1) and (2) of the Rome Convention, English law would apply. He also took into account the fact that AIG had expressly waived sight of the original policy wording.

In the light of these various factors, Colman J found that it was improbable that the mutual intention of the parties was for the Greek courts to have jurisdiction over disputes arising under the reinsurance contract in English law. In this case, the “Wording as original” provision was restricted to the substantive terms of the primary cover.

This case illustrates the problems caused where drafting is less than precise and a court must decide what the intentions of those involved were, often long after the contract was made.

The issue has recently resurfaced in the case of CNA International Reinsurance Co Ltd v Companhia de Seguros Tranquilidade SA, September 1998 (unreported), in which disputes arose when a concert due to be given by Placido Domingo was cancelled due to his ill health. In this case, Mr Justice Clarke was faced with the unenviable task of making sense of a situation where the terms of an insurance policy which itself contained three different forms of wording were purported to be incorporated by reference into the reinsurance. The approach taken was to look at all of the terms of the direct policy and to manipulate them so they made sense in the context of the reinsurance. It was accepted that some of the terms would have no meaning but the judge observed that in the absence of incorporation, the reinsurance would have no terms of its own!

Anna Riley is a lawyer in the insurance group Lovell White Durrant, a major international law firm with offices in Europe, the United States and Asia.